Page 4 - Module1_Introduction_to_the_Forex_Environment

Module 1 – Lesson 1 – Introduction to the Forex Environment

1. what is forex?
For an ordinary person not engaged in Forex trading, it is very easy to explain the definition of Forex
with an example of travelling to different countries. When arriving at one country, the first thing to
do for a visitor is to exchange the money of his/her country with the currency of the country. This
process is itself participation in the Forex market - exchanging one currency for another.
You might be new to Forex trading, however it’s something that the human population have been
doing for a very long time. Humans differentiate themselves in their ability to collaborate with each
other and trade goods and services, which has helped them to create groups, villages, and nations
in the process. People have been trading their valuables in exchange for something they need since
the beginning of time, and that remain the most important element of executing trades in the Foreign
Exchange environment.
As you may already know, different countries have different national currencies. The United States,
for example, has the US dollar, the United Kingdom has the British pound, and South Africa uses the
South African rand. If you have ever travelled outside your home country, the chances are that you
needed to exchange your national currency for the currency of the country you were visiting. If you
have done so, then you have already traded Forex without even knowing!
However, while exchanging Foreign Exchange on the way to your dream destination technically
counts as Forex
trading, the reality of trading Forex to make a profit is what you are about to learn in this course.
Today, becoming a Forex trader means participating in a global market that trades over 5 trillion
dollars a day. While traditionally, the Forex market was only accessible to big banks in the past, with
the advent of the Internet, today, anyone can start trading Forex.
The objective in Forex trading is to profit from foreign currency movements. More than 90% of all
Forex Trading performed today is for speculative purposes with the main aim to profit from currency
movements. The balance of approximately 10% belongs to hedging and other market activities.
Forex Trades are non-delivery trades as currencies are not physically traded, but rather the execution
of pre-agreed currency contracts. The contractual parties, i.e. the trader and the trading platform
undertake to fulfil their obligations of buying or selling the amount specified.
The currency contract ends by offsetting it against an opposite position, resulting in the profit and
loss of the contractual parties.
In a nutshell, Forex is an acronym for FOReign Exchange, or a special kind of world financial market
where one foreign currency is exchanged for another.
It is also referred to as FX for short or as the International Currency Markets, Foreign Exchange
Market or simply the Spot Market.

2. the forex market
To understand the Forex Market, let’s recap on the definition of a market.

A market is the means through which buyers and sellers are brought together
to aid in the transfer of goods/services
• Need not have a physical location

• Need not own the goods and services it helps sell
• Can deal in a variety of goods and services

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